07 Mar 2016

Bullish Australian Dollar adds sparkle to investment diamonds

The key takeaway here for diamond buyers is that these unexpected developments in our currency present an excellent buying opportunity, whether adding to existing holdings or getting into the market for the first time.

Australian dollars

MARKET COMMENTARY: The AUD/USD had a terrific week, this morning trading at just over 0.74 Australian cents to the US Dollar. The Aussie has now rallied 8.3% since January 15th, significantly outperforming expectations as a week of positive economic surprises has helped. The Australian economy is growing faster than expected, commodity prices have increased with iron ore extending its 19% gain last month, and a falling US Dollar have all been factors supporting our unexpected stronger currency.

This translates into a favourable buying opportunity for investors looking at making additions to their diamond portfolios. Just as with commodities such as oil and gold, diamonds around the world are traded in US Dollars. This means that the higher the Australian dollar is worth against the US Dollar, the lower the price in AUD for the same diamonds, even though the intrinsic value remains the same.

AUD index

What will happen short-term with the AUD is anyone’s guess considering the degree of volatility across currency markets, but many economists believe these gains to be a short-term corrective rally, predicting an overall weakening trend in the Aussie as the year continues. Some believe the AUD could go as low as 50 cents vs. the USD with continued volatility in commodity prices and concerns over soft Chinese growth weighing on the local currency.

A growing number of economists also say that if the surge in the Aussie continues, the Reserve Bank of Australia might have to cut interest rates to less than the current 2%.

“If the currency gets up into the high US 70 cents, the Reserve Bank may well consider cutting interest rates again,” independent economist Saul Eslake told Bloomberg at the weekend.

“We know [the RBA] prefer the Aussie to be trading closer to US 65 cents and, given that we are nearly [US10 cents] away from that level, there’s a risk of currency-related comments from RBA officials,” says Kathy Lien, BK Asset Management’s director of foreign exchange strategy.

The key takeaway here for diamond buyers is that these unexpected developments in our currency present an excellent buying opportunity, whether adding to existing holdings or getting into the market for the first time.

Until next time,
Anna Cisecki, Executive Director

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